Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Whether the parent can be assessed for taxes owing by its subsidiary that has been wound up into the parent and dissolved.
Position: Yes.
Reasons: The parent company can be considered to be the legal representative of its subsidiary.
August 10, 2011
Assessment and Benefit Services Branch HEADQUARTERS
Business Returns Directorate Income Tax Rulings
Directorate
Attention: André Bertrand, Manager Richard Aronoff
Business Registration and Support (613) 941-7239
2011-039919
Assessing the Parent as the Legal Representative upon the Wind-Up of a Subsidiary
This is in response to the email from Bruno Dufresne, wherein he requested an interpretation in the situation where a subsidiary corporation that owes taxes is wound-up into its parent and the subsidiary is subsequently dissolved. He has asked for comments on the three questions presented below.
1. To whom should or can the Canada Revenue Agency issue a notice of assessment?
Your Position: A notice of assessment can be issued to the parent.
Our Comments: Subsection 159(1) was amended, effective June 1998, to provide that the legal representative of a taxpayer is jointly liable with the taxpayer to pay any amount that is payable by the taxpayer and to perform any duty or obligation imposed on the taxpayer under the Act. The Department of Finance Technical Notes, issued with the amendment, provide that for all purposes of the Act (including assessments, objections and appeals as well as collection, administration and enforcement), the legal representative is considered to be the taxpayer's agent. Actions and proceedings under the Act taken by the representative (in that capacity) or taken by the Minister against the representative, will be binding on the taxpayer.
2. Can the parent company be considered to be the legal representative of the subsidiary?
Your Position: Yes.
Our Comments: "Legal representative" of a taxpayer is broadly defined in subsection 248(1) and includes a winding up. The Technical Notes provide an example that the issuance of a notice of assessment against the legal representative of the taxpayer (such as a parent corporation that wound up its subsidiary and acquired its assets) will have the same effect as if it had been issued against the dissolved taxpayer at that time, as if it had been in existence at the time. The reassessment could be issued against the taxpayer's legal representative, with a reference that it relates to the taxpayer; however, this is an operational policy issue, not one warranting legislative interpretation. The taxpayer's legal representative would then be liable to pay the amounts owing.
Where a subsidiary corporation is wound up into its parent with the parent acquiring its assets, the parent can be considered to be the subsidiary's legal representative under subsection 159(1). Under subsection 159(1) the Minister may assess or reassess the parent company as the legal representative of the subsidiary, provided the assessment or reassessment is made within the limitation periods provided by section 152 of the Act, as if the subsidiary had it not been wound up.
3. Does the Canada Revenue Agency need to apply to restore the dissolved subsidiary corporation in order to reassess its tax payable?
Your Position: No.
Our Comments: As stated above in our comments to the second question, the Minister may assess or reassess the parent company as the legal representative of the subsidiary under subsection 159(1) provided the assessment or reassessment is made within the limitation periods provided by section 152 of the Act, as if the subsidiary had not been wound up. Consequently, there is no need for the subsidiary to be restored in order for an assessment to be issued in its name.
Please note that our comments are limited to a technical interpretation of the law as it is outside the mandate of the Income Tax Rulings Directorate to comment on operational policies. Should you have any questions or require additional information, please do not hesitate to telephone Richard Aronoff at the number provided above.
B.J. Skulski
Manager
Insolvency and Administrative Law Section
Income Tax Rulings Directorate
cc. Bruno Dufresne
Programs Officer
Business Registration and Support
Assessment and Benefit Services Branch
Jim Thatcher
Regional Technical Advisor for ATP, Pacific Region
International & Large Business Directorate
Compliance Programs Branch
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